Will the Finns be the first to introduce a basic income?

Finland may become the first country to introduce basic guaranteed national income.  Although the final proposal will not be considered until November 2016, the basic income plan would replace existing social welfare benefits and instead hand out a monthly tax-free payment of €800 for every Finnish adult.

According to the poll commissioned by KELA, the Finnish Social Insurance Institution, 69 percent of the population supported the idea of a universal monthly income of about €1,000.  The poll indicated that there was especially high support for basic income that was implemented as a negative income tax.  Initially proposed by Milton Friedman and Robert Lampman, negative income tax arrangement would provide payments from the state that would increase in inverse proportion to income.  However, as the Finnish constitution requires an equal treatment of every citizen, an equal pay should be made to one and all, at least those in the wage earning age.  Naturally, some of the basic guaranteed income could be clawed back by taxes from the better off individuals.

Finland’s major political parties back the universal basic income concept as the means of simplifying the country’s complex social welfare system, and perhaps counterintuitively, the plan is seen as the means of tackling high unemployment.  Finland has been in a recession on and off since the mid-2012 having lost its footing in the traditionally strong pulp and paper industry, and after the demise of Nokia in mobile phones, the tech sector has not lived up to its expectations as a national growth engine.  The country’s unemployment rate is alarmingly high, hovering around 10 percent and rising to 23 percent among the young.

The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost.  At the moment, taking a low paying job may result in lower welfare benefits and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with temporary employment that reflects the changing nature of work.  There can be a lengthy time lag before welfare payments are restored after a temporary contract employment has been terminated.   

Critics of basic guaranteed income caution that it could remove people’s incentive to work, especially among the young.  However, previous experiments with basic universal income provide support that such programmes produce largely positive social and economic benefits.  In the Canadian town of Dauphin everybody was given a stipend from 1974 to 1979.  Although there was a drop in the hours worked this decline was mainly due because men spent more time at education and women took longer maternity leave.  Other social benefits of the experiment were hospital admissions for mental-health related issues that fell after the introduction of the guaranteed income scheme.  These results were most likely a result of the stress reducing effects at least to some degree of income security.  In addition, economic benefits of basic guaranteed income have been studied in Uganda.  When thousands of unemployed people were given unsupervised grants twice the their monthly income, working hours increase by 17 percent and earnings rose by 38 percent.  The guaranteed income provided a level of security that motivated people to gain further skills and/or take entrepreneurial risks. These experiments indicate that people with a basic income do not lead idle lives.  In developing countries the economic benefits can be substantial in terms of skills development, longer working hours, and a significant uplift in earnings.   In wealthier countries the accrued benefits may include personal and professional development, improved family life, and the pursuit of healthy lifestyles.

However Finland’s basic universal income or negative income tax initiative will ultimately be implemented it is unique in the sense that it has gained support across the political divide.  Other countries that are seriously considering such policy options include the Netherlands and Switzerland that will hold a national referendum on guaranteed basic income in 2016.  The major question that Finland and other countries will have to address is the cost.  Bloomberg has calculated that in the case of Finland the cost would amount to €46.7 billion annually.  The projected government revenue for 2016 is estimated at €49.1 billion.  It will be interesting to follow how the policy discussion evolves and what the projected savings will be from the streamlined welfare administration and what welfare payments eventually will be scrapped and rolled into the basic universal income.

From libertarian perspective, we should support the basic guaranteed income policy development.  The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy.  Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  The provision of national income removes the stigma that is often attached to having to apply for welfare payments.  Moreover, basic universal income increases choice as it allows and empowers individuals to make decisions how to spend their income by themselves by removing the state diktat of targeted welfare payments.  Finally, the implementation of a basic guaranteed income policy could reduce administrative costs and roll back the state, at least a little, which on its own would be a worthy outcome.

Further reading:

Story, M. (2015) Free Market Welfare: The case for a negative income tax. ASI (Research) Ltd., London

The Freedom of Information Act is supposed to be a burden

We have the usual delightful sight of a bureaucracy complaining about the very point and purpose of something. For this is what is happening here, local authorities complaining about the manner in which the Freedom of Information Act is a burden upon them. Yes, it's supposed to be, that's what it is for, the purpose, point and design of the entire thing.

Councils, leading universities and dozens of other public bodies have demanded that Britain's freedom of information laws should be significantly weakened to make it easier for them to refuse requests. Local authorities said that requests should be subject to fees and that the limit on the amount of time they have to spend responding to them should be lowered from just 18 hours to eight. The Local Government Association described freedom of information laws as a "burden" and even suggested that the cost of censoring material that they release to members of the public should be accounted for when they respond.

That burden being that the various levels of government currently swallow some 40% of everything that we all produce in any one year. And we thus get to know what the hell you're all doing with that loot.

Yes, we get to know, in detail, how you've spent the cash, who you've talked to about how to spend it, what evidence you've used to reach your spending decisions, we get to demand management reports from our employees. And we also get to ask pointed questions about specific pieces and parts of the process: thus our right to make such information requests.

And is this a burden to those who must respond? Sure it is, just like having any manager breathing over your shoulder is a burden. But then that's the point of it, that it should be a burden. No, fees should not be charged: why should we have to pay in order to find out how you're spending our money?

If anything, the law should be further liberalised to as to increase that burden, not restricted.

Housing benefit is broken—abolish it

I argue that housing benefit is a terrible part of the welfare system and that it ought to be scrapped on CapX.

Now the government has U-turned on plans to abolish tax credits, it should look at housing benefit for welfare savings—most housing benefit is a transfer to landlords and the remainder is an inefficient and distortionary intervention. It should abolish the £26bn system and use the money to fund tax cuts for low earners and a shallower Universal Credit withdrawal curve. Paradoxically, housing benefit is one of the causes of our housing crisis, rather than a solution.

There are numerous ways of compensating low earners in better ways: for example it would cost about £14bn to raise the threshold at which workers start paying National Insurance Contributions to the full-time minimum wage level (£251.25 a week or around £13,000 a year). We could also make the rate at which Universal Credit is withdrawn less steep, or beef up tax credits. Any of these would strengthen work incentives and efficiency, and enhance the progressivity of the overall tax and benefits system, relative to the current regime.

Read the whole thing.

Would a basic income reinvigorate civil society?

I've long made the case for a basic income (aka a Negative Income Tax) on the basis that it would simplify the welfare system and make sure people always have an incentive to work. My fear is that in-work poverty will be the challenge of our time, just as unemployment was in the 1930s and inflation was in the 1970s, because things that are raising living standards overall like globalisation and automation may be leaving behind people at the bottom of rich societies. Consider what options the former steel workers at Redcar now have. But Charles Murray's argument for a basic income is different:

My real goal with all of this is to revive civil society. Here’s what I mean by that: You have a guy who gets a check every month, alright. He is dissolute; he drinks it up and he’s got 10 days to go before the next check comes in and he’s destitute. He now has to go to friends, relatives, neighbors or the Salvation Army, and say, “I really need to survive.” He will get help.

But under a guaranteed basic income, he can no longer portray himself as a victim who’s helpless to do anything about it. And you’ve got to set up feedback loops where people say, “Okay, we’re not going to let you starve on the streets, but it’s time for you to get your act together. And don’t tell us that you can’t do it because we know you’ve got another check coming in in a couple of days.”

A guaranteed basic income has the potential for making civic organizations, families and neighborhoods much more vital, helpful and responsive than they have been in decades. ...

Right now, people can say, “What am I going to do? There’s no job out there. There’s this or that.” If you’re getting a check every month, you are not without resources, and that opens up a whole new dialogue between you and the other people around you.

America’s always been very good at providing help to people in need. It hasn’t been perfect, but they’ve been very good at it. Those relationships have been undercut in recent years by a welfare state that has, in my view, denuded the civic culture.

That's an interesting thought. "Primary poverty" is usually thought of as just not having enough to get by, no matter how hard you try. I think that probably describes the situations of most poor people in the world today. "Secondary poverty", though, is the poverty that comes from wasting the resources or skills you have through low conscientiousness, addition, laziness or something else.

I've always thought of a basic income as being a very good solution to "primary poverty", while perhaps risking exacerbating "secondary poverty". But if Murray is right that the state crowds out civil society, then perhaps there is a very conservative case for rolling it back, and just giving people the cash instead.

Trade body head doesn't like new rules which deprive trade body members of income

Now this is a surprise, isn't it?

The UK’s accountant-in-chief has issued a stark warning that new rules designed to cut red tape for small businesses could increase the risk of crimes going undetected and reduce public trust in British business. From next year, businesses that turn over less than £10.2m a year will no longer have to get their accounts independently signed off by an auditor, raising the limit from £6.5m. The change – part of Business Secretary Sajid Javid’s push to slash regulation for UK companies of all shapes and sizes – will lift an estimated 11,000 businesses out of audit requirements, and means that 98pc of Britain’s businesses will not have to carry out a full audit.

So, how should we evaluate this?

However, the Institute of Chartered Accountants in England and Wales (ICAEW) last night cautioned that the decision would leave companies vulnerable to fraud, money-laundering and inaccurate tax bills. Michael Izza, chief executive of the ICAEW, said the body, which represents almost 130,000 accountants across the UK, is holding talks with the Department for Business, Innovation and Skills about its fears.

Hmm.

“We understand their concern is to reduce the regulatory burden on business, and this is an aim we fully support. We just believe the savings would be better made in less potentially damaging areas,” said Mr Izza, who has in the past chaired a number of Treasury working groups. Bodies such as the Association of Chartered Certified Accountants have said raising the threshold to £10.2m would risk the livelihoods of many small and sole-practitioner auditors.

Well, you are free to think what you wish of course but we would evaluate this in the following manner.

These trade bodies are no more and no less than the trade union for the profession involved. Their point and purpose is to make sure that their members get as much as possible out of the hides of the rest of us. Just because they are professionals rather than horny handed sons of toil does not change this in the slightest whit.

The accountant's body shouting that more accountants must be employed is no more of a surprise than PCS, the taxmens' union, paying people to write reports shouting that more taxmen must be employed, should shock as little as the teachers' unions arguing that teacher pay should be higher, is as much news to society as freelance writers bemoaning their rate of pay is.

They're out for themselves, all of them, and as long as we remember this we can value their contributions to debate properly. That is, we should ignore them. They are arguing that more of your money should be in their pockets. And?

Higher tax rates mean less social mobility

Don't believe me, believe the empirical academic research! When economists finish their PhDs and are looking for a job they produce a job market paper. Given the incentives here, these tend to be particular impressive pieces of work, whether in method, data, estimation or topic, and this from Mario Alloza at UCL (his website)  is no exception.

The paper (pdf) looks at changes in tax policy in the US and a representative sample of households between 1967 and 1996 and finds that a 1¢ in the $ rise in marginal tax rates leads to a 0.5%-1.3% decline in the probability of someone's changing income decile. For example, moving from being in the bottom 10% to being in the 10% who earn more than the bottom tenth, but less than everyone else.

According to Alloza's data, this effect is particularly significant at the bottom of the distribution—i.e. for the poorest people—and comes because taxes affect work incentives. When taxes are higher, that reduces the benefits to badly-off people from working harder and more and changing their prospects.

He says that we his result should make us more cautious of raising taxes to reduce inequality, because it will reduce opportunity and social mobility:

These empirical results have important implications for the design of fiscal policy. Tax reforms that reduce marginal rates are more likely to increase equality of opportunity (as measured by the degree of income mobility). This is because an attenuation of the distortionary effects of taxes in the labour market would make households more likely to take advantage of economic opportunities and move up in the income distribution. Therefore, fiscal policies that aim to reduce inequality should weight the trade-off in households’ welfare induced by the effect on income mobility.

Indeed, given all the costs of caring about inequality, and the very meagre benefits we gain from ameliorating it, perhaps we shouldn't care about it at all.

Ten initiatives to help young people: 9. No National Insurance for under 25s on minimum wage

Government has committed itself to raising the income tax threshold to the level of the minimum wage and indexing it there so that it will automatically rise to match any increases in the minimum wage.  The Adam Smith Institute has urged this for many years, largely on the grounds that if people are on wages that are reckoned to be the minimum, the state should not be taking money from them in taxation. There is one further thing that the government could do in this respect, however.  People on minimum wage are still liable to pay National Insurance, which has a threshold lower than that for income tax.  Since young people feature prominently among those on minimum wages, this hits them hard, taking money from those already struggling to get by on minimum wage.

It would help those young people if it were government policy to make the two thresholds the same for the under 25s.  That is, the NI threshold for them would rise to the minimum wage level, so that when government achieves its aim to equate the tax threshold with the minimum wage, those under 25 on minimum wage will pay neither income tax or National Insurance.

In large measure the whole system of National Insurance is an anachronistic anomaly.  Although originally conceived as an actual social insurance, it has long since ceased to be so.  There is no fund, and it operates like income tax on a pay-as-you-go system, with today's payments being used to meet the needs of today's beneficiaries.  The case for integrating NI into income tax is strong, but before then there is as a stronger case for calculating liabilities on the same basis as for income tax, with the same thresholds and exemptions.  If government feared how people would react when they saw how much tax they were paying in reality, they could run it as an "employment tax" running alongside income tax.

As a first step in that preferred direction, they should now have the NI threshold equated with income tax for the under 25s.  The further alignment of the two can be done later in systematic stages.  But the help given to low-paid young people would be immediate and effective.

Ronald Coase on how to solve the housing problem

Via Paul Walker, an interesting piece discussing how to apply the insights of Ronald Coase to sorting out the British housing problem:

As Pennington explains, Coase rejects this model. For him the costs are reciprocal – there are two sides each of whom is potentially imposing costs on the other. One wants to build houses, the other to preserve space. To the extent that one side gets its way the other suffers a loss. What we actually have is not an externality or pollution but a conflict over how to use land.

For Coase the solution was to assign a property right to one of the two sides and then allow a process of bargaining to take place. If the first group have the right then those who do not want development would have to pay them not to do it. If the second, then the developers (and ultimately the buyers) have to pay for the right to develop. Crucially it does not matter which of these two we go for: in either case we will end up with the outcome that maximises total welfare so long as the bargaining process itself is not too costly.

We have no doubt this would work and that should be good enough as a solution. However, while it would work we're really not convinced that it is the correct solution. For what it is saying is that those who wish to prevent building upon land that they do not own have some form of right to say or insist so. That's why they might be due some compensation from those who do build. And we rather reject that basic contention.

Property ownership does mean that one should be able to dispose of the property as one wishes. Consistent with this is that other people do not have the right to impose their views upon you of how you should dispose of that property. Thus we're uncomfortable with the idea of creating a right which can then be subject to such Coasean bargaining.

Far better, we think, to return to our basic idea. Simply blow up the Town and Country Planning Acts in their entirety. Yesterday, for preference.

There are times we despair over human intelligence

So our intrepid traveler goes off to Cuba, just to see what it's like. And he notes that no one has any money, everyone's dirt poor. And there's not really much of anything to buy with the money that people don't have. Also, the food is, to be polite, not great, tasting old and stale and frankly, there's better Cuban food at Miami airport. And there's a shortage of toilet paper and you'll really never find soap. And the best part of the trip was:

Is it true there’s no advertisements anywhere?

Yup! This was the coolest part. An entire week and a half of not being sold to by huge corporations. The only ads we saw were the aforementioned Socialist propaganda billboards on the side of the road.

The absence of those huge corporations being why you can't wipe your bottom, nor wash your hands afterwards, nor even get fresh and decent food to put in the other end. Nor, of course, the jobs, production or money to purchase that cornucopia of things that huge corporations produce.

Billboards reading "everything is for more socialism" are much cooler than anyone actually having anything.

We console ourselves with the idea that intelligent life might one day arise on this planet. Perhaps.

So how does this work then?

The European Union has announced that there will be, must be, lots more recycling. As we've said for many years now, we're all in favour of recycling that makes a profit. Profit being, of course, the value added by undertaking an activity. We've also been saying, for those same years, that recycling that makes a loss isn't a good idea as what's the point of destroying value, of making everyone poorer? But the EU likes targets and targets there will be and that's that then. But we're still hugely interested in how they're going to pull this particular trick off:

Europe’s throwaway society will come to an end by 2030 under a wide-ranging set of proposals by the European Commission to create what it calls a circular economy.

The plans include lots of recycling to get maximum value out of every raw material, redesigning to make sure what one buys does not become obsolete in a few years; and better design to make goods easy to repair.

It will also set tough targets for countries, including Ireland, to vastly reduce the amount of waste sent to landfills and touch every aspect of life, from fertilisers to food, and cars to washing machines and phones.

The new targets are slated to save consumers and producers billions of euro a year, create jobs and products, and make a real contribution towards protecting the environment and fighting climate change.

Other reports suggest that the plans will create 2 million jobs. And that's the bit we don't understand.

Jobs are, obviously, a cost of doing something. People want to get paid for doing them: and there's only us consumers around to pay them, whether through prices or taxes. So, the plan will mean that we must pay the wages of 2 million more people and yet it's going to save us money?

How does that work?

That's quite apart from the gross stupidity of this:

Changes in the design of products like phones, which contain tiny amounts of valuable but scarce minerals, should also improve Europe’s competitiveness in the battle with China and other countries for a share of these precious products.

The rare earths, which is what they're really talking about, are being given away these days at well under production cost. And global resources of them will last to some point near the heat death of the universe at current consumption rates. We're not even in a battle with China about them either. The whole idea is simply divorced from any form of reality.